Tax Considerations When Re-Financing
For many homeowners the overall goals of re-financing are often
paying less in interest overall and reducing monthly payments. When
a homeowner is able to obtain a lower interest rate, there is
usually the opportunity to re-finance the mortgage to capitalize on
the lower interest rate. However, a lower interest rate does not
automatically translate to a savings. The homeowner must carefully
consider the amount of money they will be savings over the course of
the loan in relation to the amount of money they will be spending to
re-finance the mortgage. When the closing costs associated with
re-financing are larger than the savings, re-financing may not be
warranted. Re-financing can also have financial ramifications
associated with tax options.
Paying Less Interest Equals Less of a Deduction
In most places, homeowners are permitted to deduct the amount of
taxes they pay on their mortgage when filing their tax forms. This
is usually quite a substantial deduction for homeowners who owned
the home for the entire tax year. Those who re-finance their
mortgage will typically be paying less money each year in taxes on
the mortgage. While this is great in the long run, it can adversely
affect the homeowner’s tax return.
Consider the circumstances where a homeowner is located just below a
major tax bracket which would be quite pricey for the homeowner. As
all ready discussed, re-financing may result in the homeowner paying
less money in taxes each year. This means the taxpayer will be able
to make a smaller deduction this year now fall above the tax bracket
they previously fell below. When this happens the homeowner may find
themselves paying significantly more in taxes.
Consult a Tax Preparation Specialist
Determining the exact results of paying less interest on a home
mortgage on a tax return can be a rather difficult. There are a
number of difficult equations involved which can make the apt to
make mistakes while trying to determine the consequences of paying
less in taxes on the mortgage. For this reason, the homeowner should
consult a tax preparation specialist when determining whether or not
re-financing is worthwhile because the tax specialist can provide
information regarding the impact of paying less in interest.
In selecting a tax preparation specialist, the homeowner should seek
the opinions of friends and family members if the homeowner does not
employ a specialist to prepare their own taxes. This can be helpful
because trusted friends and family members are only likely to
recommend professionals they feel were knowledgeable, trustworthy
and caring. A tax preparation specialists should have all of these
qualities but should also be well versed in the area of tax
preparation. This will enable the tax preparation specialist to make
all of the right decisions when considering the needs of the
homeowner.
Online Calculators
For homeowners who do not know a tax preparation specialist or for
homeowners who are unable to afford the consulting assistance of
these individuals, there are online calculators which homeowners
might find very useful. These calculators are readily available
throughout the Internet and can be used to determine the tax
ramifications to re-financing. These calculators ask the user to
input specific criteria then returns results regarding the amount
the homeowner will pay in taxes during the year if he refinances.
Additionally the homeowner can run these equations several times to
consider a number of different scenarios.
Back to San Diego downtown real estate article index |
